Fiscal Sovereignty for Pakistan

If the starting point for analysis in the post Hakeemullah Mehsud world is that he was assassinated by the US with malign intent, (and clearly there is plenty of political capital located within that umbrella) then the conversation to be had is about how to find a way to end the constant abuse of Pakistan by big, bad Uncle Sam.

It is hardly controversial for us to accept and embrace the fact that we cannot keep complaining about the alleged abuse we endure at the hands of America on the one hand, and constantly seek direct and indirect American fiscal generosity on the other. The fiscal contradiction, between the money we want to run Pakistan, and the money we have to ask others to provide to us to do so, is at the heart of the Pakistani republic’s deep and abiding dysfunction.

Let us put it a different way. No Pakistani could ever dream of any scenario better than one in which Pakistan enjoys and exercises full and unmitigated sovereignty. This requires crisp and utter clarity about things like drone strikes conducted by another country in Pakistani territory. If they take place without an explicit agreement authorising them, drone strikes are illegal – always have been, always will be.

It also requires crisp and utter clarity about things like terrorists safe havens. All territories that are identified as Pakistan on a map, must be places where the Pakistani government, national, subnational or local, can go safely, and dictate terms. When areas within a country fall outside this definition, such as the situation in North Waziristan, then that is a full and uncomplicated breach of Pakistani sovereignty. No matter how much love there may be for the Taliban in Mansoora, or Akora Khattak, or DI Khan, as soon as any authority emerges that successfully and sustainably challenges the state for a monopoly over violence, then that state’s sovereignty is immediately in question.

Both these aspects of sovereignty are well explored in the current Pakistani milieu. Nationalists like myself can spend hours explaining and emphatically making the case for how drone strikes undermine Pakistani sovereignty and therefore violate both the international order and the boundaries of what is legal behavior between states. Meanwhile, many friends of Pakistan have already spent hours, and hours, explaining to the Pakistani military and civilian leaders about the dangers to Pakistani sovereignty of allowing terrorists to establish safe havens in which neither the Pakistani police services, nor the Pakistan Army, nor even the Pakistani clandestine services are able to operate freely.

However, there is one aspect of sovereignty that has not been fully explored, despite some of the stellar work that has been done domestically by journalists like Umar Cheema and commentators like Huzaima Bukhari and Ikramul Haq. Can any country be truly sovereign in the absence of fiscal freedom? Or to be more provocative about it, how can Pakistan expect to be taken seriously by Uncle John Brennan in Langley, Virginia when he knows that ultimately, we will go running to Uncle Richard Olsen in Islamabad as soon as we run out of money to pay our bills? Just like it is uncontroversial to argue for sovereignty in the context of drone strikes, we must develop a narrative that makes it uncontroversial to talk about fiscal sovereignty.

Too often friends on both left and right use these notions of fiscal independence, and freeing ourselves “from the shackles of international aid” merely as rhetorical instruments. But for centrists, the notion of fiscal sovereignty is a serious issue that has grave consequences for economic growth and, both by extension and directly, for national security.

To be fiscally sovereign, Pakistan has to raise and spend money from within Pakistan. To do so, it has to raise taxes on the rich, dramatically, and it has to rationalise taxes on the middle class, substantially. As long as the rich and the wealthy continue to ride the coattails of direct and indirect American generosity, the vast majority of Pakistanis will continue to feel a burning sense of indignity every time our leaders engage with the US government.

It is useful to clarify the use of the term fiscal sovereignty in the Pakistani context. The most recent instance of the use of the term fiscal sovereignty that I think has salience for Pakistan is within the context of the European Union and Eurozone. In the aftermath of the financial crisis of 2009 and the rolling avalanche of fiscal emergency across many European countries, fiscal sovereignty became an issue within the context of the behavior of Eurozone states.

One of the 2001 Nobel laureates in economics, Michael Spence wrote of this in 2010. He argued for curtailed fiscal sovereignty in the Eurozone, because everyone having their own fiscal policies, whilst sharing a currency, and invariably sharing the liability for poor fiscal behavior, was not sustainable. In short, Spence was saying that countries like Greece and Portugal have to sign up to be more like Germany, to prevent sustained fiscal irresponsibility by those countries at the expense of German taxpayers and policymakers – both of whom, for all their other ambient faults, are better fiscal managers than the Greeks or Portuguese (or Irish or Americans or Italians for that matter).

What does this mean? Well, Europe obviously doesn’t have the very recent and ambient baggage of the Afghanistan war, like Pakistan and the US do. So when we look at Europe, and we can find a similar narrative amongst European countries, as we do today between Pakistan and the US, perhaps we can examine the realities without the weight of geopolitical gobbledygook.

No country should have to pay for another country’s shopping habits. Greece, Portugal and Pakistan (among many others) make poor fiscal choices, we know this. In Pakistan, these poor choices have produced among the world’s highest maternal mortality rates, among the world’s highest out of school children population, and poverty rates that should embarrass decent people everywhere. Yet we also have one of the world’s biggest armies, and one of the world’s most ambitious national narratives – fortress of Islam, Land of the Pure, Imran’s tigers, Sharif’s lions, Bhutto’s trailblasing arrows. And we are all about sovereignty when it comes to drones. It is all terribly inspiring. Except when we reach the cash register and it is time to pay.

When it is time to pay, we trot our Shaukat Aziz, or Shaukat Tarin, or Hafeez Shaikh, or Sartaj Aziz, or Ishaq Dar. All competent, and all with well-deserved reputations for integrity. But will anyone ever confuse any Pakistani finance minister as a balance-the-budget fiscal Robin Hood? Or to be more blunt, have we ever wondered why popular leaders keep picking unpopular (and unelected) Finance Ministers?

The short answer is because a popular (and electorally answerable) finance minister would be much more conscious of fiscal sovereignty. And this consciousness would eventually (not immediately, but eventually) lead to dramatic increases in revenue, and a lot less time negotiating with the US ambassador and the IMF missions that regularly come to assess Pakistan (to Dubai).

Our fiscal chickens have come home to roost. If Pakistan wishes to enjoy real, meaningful sovereignty, it must begin to dramatically increase revenue by raising taxes. We must pay our own way in the world. Only when we approach the United States as fiscally sovereign equals will our appeals to international law and friendship be heard. Till then, we will continue writing sovereignty cheques that our fiscal ability cannot cash.